Stock Market News – Alphabet in focus ahead of quarterly earnings report

Carol, XM Investment Research Desk

Tech giant and Google-parent Alphabet is scheduled to release its earnings report for Q1 2018 after Monday’s US market close. The consensus recommendation for the company is “buy”, the same as the average consensus recommendation for the Online Services peer group.   

Alphabet’s quarterly earnings per share (EPS) are anticipated to come in at $9.28 according to analysts submitting their forecasts to Thomson Reuters’ estimate system (the Institutional Brokers’ Estimate System – I/B/E/S). Current expectations reflect a downward revision from $9.33 from four weeks ago. Still, if the corporation’s bottom line matches projections, such an outcome would represent an increase by 20.1% relative to the corresponding quarter from last year when the firm earned $7.73 per share. Analysts’ EPS estimates range from $8.24 to $10.07 at the moment. The world’s second largest company by market cap (behind Apple) delivered an earnings beat in three of the four preceding quarters, while falling short of forecasts once.

Should a positive earnings surprise be delivered by the company again, its stock price might be on the receiving end of buying interest. Resistance to advances could be met around the $1,100 round figure, which also encapsulates Thursday’s one-month high of $1,097.51. Stronger bullish movement might meet an additional barrier around $1,144.25, this being a previous peak. A data miss on the other hand might spur sell orders. Immediate support could be in place at the moment around the current level of the 50-day moving average at $1,076.76. A downside violation of the area around this level would turn the attention to $1,050.11, this being a previous bottom with the range around it being congested in the past. The 200-day MA lies not far below at $1,031.11.  Historically, sharper deviations between projected and actual results are more likely to result in more profound movements in a given company’s share price.

In terms of the short-term picture for Alphabet’s stock, it appears to be predominantly positive with the RSI rising overall during the last three weeks. However, the indicator seems to have eased a bit, this constituting a sign of weakening bullish momentum for the stock.

Besides the EPS figure, investors will also be paying attention to the firm’s operating margins and advertising revenue from its search engine (as well as other services such as YouTube).

In the bigger picture, the possibility of increased regulatory hurdles within the tech space in the aftermath of “fake news” stories and data breaches, including the one involving Facebook and Cambridge Analytica, is something that will be looked out by market participants when determining the outlook for tech companies and which can weigh on stocks such as Alphabet. Falling within this spectrum, it is worthy of mention that the Google-parent has already received a fine in excess of $2.5 billion by the EU on the back of anticompetitive practices, with additional cases being open against the corporation.

Moreover, as of late there is increased talk of “bubbly valuations” within the tech sector. If the market in its collective wisdom starts to increasingly challenge such valuations, leading to a selloff, then Alphabet’s stock is likely to also fall victim to such a bearish spiral. It should be kept in mind though, that such panic-selling often provides opportunities to buy the dip.

Alphabet is an S&P 500 and Nasdaq 100 component stock. Year-to-date and ahead of Monday’s US market open, the corporation’s stock price is trading higher by 2.3%, with the equivalent performance by the two benchmarks standing at -0.1% and 4.2% respectively. Wall Street analysts’ mean and median price target on Alphabet stand at $1,275.12 and $1,300 correspondingly.

This is a busy week in terms of corporate earnings releases. Some other big tech names reporting quarterly results in the days to come are Facebook (Wednesday), Twitter (Wednesday), Amazon (Thursday) and Microsoft (Thursday). Geopolitics and developments on global trade could also drive sentiment, though these seem to have taken the back seat on the face of corporate results, at least for now. Rising Treasury  yields is another factor under consideration, having the capacity to shift funds out of stocks.